Author Topic: What would a mustachian do? W.W.A.M.D?  (Read 4209 times)

Simplify

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What would a mustachian do? W.W.A.M.D?
« on: July 22, 2013, 03:27:00 AM »
We’re new and have a lot to learn.  We’ve missed the boat for early retirement, by our combination of low incomes and lack of aggressive saving, but we are eager to stay afloat.  Besides doing whatever we can to earn more and to spend less (believe me! we’re working on it!), where should we direct any additional money we come by now that our emergency fund is funded? Any help from this community is greatly appreciated! 

Here is our financial snapshot:

We’re parents entering early 40’s with 2 kids.   Our income is low, but we embrace simple/frugal living and are surrounded by many other similar minded low- income earners in our family and social circle. It’s all we’ve ever known. 

Our downside:

-We have 17,000 in student loan debt, with a 4.75 interest rate.

-Maybe 7,000 ish per person in 401ks or other similar plans?  Ouch!  We wish that we knew the importance of saving instead of just getting by in our 20s & 30s!

-Low earning power.   My husband works a day job and a part-time side job, earning 35,000 year.  I stay home with the kids and care for a few extra kids for additional income, but not much.  If I worked outside the home, I would be afraid that I might not earn enough to be worth it after paying for childcare.  …and I don’t want to miss out on these early years.  In a couple of years it will be much more viable to work with two school age kids, which will be a much needed boost to our income.

-No established pattern of monthly retirement savings and not sure how to best begin…


Our upside:

-No credit card debt or other debts besides the student loans mentioned above. 

-15,000 in savings for our emergency fund at our credit union.

-In 4 yrs a rental property jointly owned with family will be paid off and we anticipate it will provide us with at least 900/month passive income.

-We used savings and skills to renovate a separate studio in our primary residence, which generates 625/month passive income.

-We just refi’d our mortgage for our primary residence with a 3.625 rate for a 20 yr loan.  We plan to pay 200/mo extra in order to be paid off in 15 yrs.


So our questions include: 

Do we really need to prioritize knocking out the student loan debt before starting (sadly, rather late) to save for retirement?

Should we try to pay down any more on our primary mortgage so that we could own our home any earlier than the targeted 15 yr pay-off point?

How should we best start saving for retirement?   Are there any key posts I should read about how to prioritize various modes/vehicles for retirement savings?  My husband is currently getting whatever match his company provides for his 401k, but I don’t think he is currently contributing the max allowed because we were so focused on growing our emergency fund.

Any help from those more experienced is greatly appreciated!


Paul der Krake

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #1 on: July 22, 2013, 04:23:37 AM »
Welcome!

At almost 5%, paying off that loan ASAP is a pretty good guaranteed return on your money. Unless you are confident you can get a better return elsewhere, plow your dollars into that for sure. Since you have some degree of present and future passive income plans covered with both your studio and the rental property (is it barely breaking even right now?), I wouldn't worry too much about your retirement accounts for now.

Can you think outside the box and come up with an income-generating activity you could do on the weekends while your husband watches the kids?

OzzieandHarriet

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #2 on: July 22, 2013, 06:36:16 AM »
I wouldn't pay the extra $200 toward the mortgage, with the low interest rate that you have, especially just to shave off 5 years of the loan term. You might be better served applying that to the student loans or saving it instead.

Forcus

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #3 on: July 22, 2013, 07:55:02 AM »
Just a thought - you should give yourself some credit for being so frugal and figuring out additional income. There are a lot of people your age and older, with nice homes and cars and such, who have not saved up much or anything for retirement. They have the ability to do so, but do not. You already have the proper mindset. Again just a thought.

MissStache

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #4 on: July 22, 2013, 08:45:26 AM »
I don’t think he is currently contributing the max allowed because we were so focused on growing our emergency fund.


Goodness, a 15K emergency fund seems perfectly adaquate!  I would stop putting money into that (and perhaps even put a big chunk- at least 5K- into something that will show some growth) and put that money towards your student loans.  Get rid of those as quickly as you can!

reginna

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #5 on: July 22, 2013, 09:07:35 AM »
Simplify, I have no words of wisdom but just want to say how impressed I am with your savings and rental properties!

Hunny156

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #6 on: July 22, 2013, 10:42:22 AM »
Ditto.  I think you are in much better shape than you realize, and it's inspiring to see your story!

Put the extra $$ to the Student loan bills and knock them out.  Since you are likely making very little interest on that emergency fund, I'd take a chunk of that too and cut the student loan balance down a bit.

Your rentals are a great start to your retirement fund - you are going to eventually use this as income replacement.  While you should still have a good chunk of liquid assets before retiring one day, having the cash flow will enable you to retire w/less liquid.

Keep doing what you are doing!  :)

Rebecca Stapler

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #7 on: July 22, 2013, 10:51:00 AM »
Welcome!

What is your current savings rate per month? I ask because I'm about to recommend you take your $15k E Fund and send it straight to your student loans, then put the rest of it into Roth IRAs for both of you. The reason is, if you are saving $$ each month and you face an emergency, you will be able to pull the cash from your monthly savings. Many "emergencies" don't need to be paid for 30 days (if you put it on a cc), and in those 30 days you have a lot of options -- save for it, take out a HELOC, take it out of your Roth (as long as it's just the principal, there are no penalties), find a side hustle to cover the expense.

(As for where to start the IRA, I recommend Vanguard, with an index fund, and many MMMs recommend the same thing but it's up to you. I like Vanguard index funds b/c of the low costs.)

As for not having a monthly habit, I recommend simply setting up a savings transfer on a timeline that works with your income -- once a month, twice a month, etc. If you don't already have an idea of where all of your money is going, write it all down and tie it to the dates when you make those payments, and you will find a good spot for your regular retirement contributions. Now that your Roth IRAs are all set up, those transfers will be easy. Just set it and forget it.

The passive income through land lording is great to have on the horizon!

The other thing that you have on the horizon is your return to the workforce when your kids are school-aged. Is there anything you can do now to prepare for that -- gaining skills, volunteering, meeting people and networking, etc.?

Dicey

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #8 on: July 23, 2013, 07:54:38 AM »
My take? STOP paying extra on the mortgages immediately. Divert all that cash to your student loans and knock those suckers out. It appears you have not fully considered the deductability of mortgage interest and the benefits of inflation with respect to both your mortgage and your rental income.
I'm completely with the amount you have built up in your EF. Having it will give you peace of mind while you slay the student loan dragon. Even though you say you haven't saved much for "retirement", your real estate ownership certainly counts to that end.
The next step is to educate yourself about your stock market. Learn about ETF's and other low-cost investment options. Forget about individual stocks. Get yourselves diversified as cheaply as possible. The Motley Fool is a good place to start. So is anything by Daniel Solin, starting with  "The Smartest Money Book You'll Ever Read" followed by "The Smartest Retirement Book You'll Ever Read". Get them from your library and devour every word. They're comprehensive, yet easy to digest.
Finally, if you're not a friend of Amy Dacyczyn, find out who she is and become one right away.

Kudos to you. Forty(ish) is not too late. You will be surprised at where you will end up with the good habits you've established.

MakingSenseofCents

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Re: What would a mustachian do? W.W.A.M.D?
« Reply #9 on: July 23, 2013, 12:25:51 PM »
If it were me, I would want to knock out those student loans. I just finished paying off mine and the feeling is great!